The Rural Hospital Closure Relief Act of 2025 would amend Title XVIII to empower states to designate certain rural facilities as critical access hospitals (CAHs) by waiving the Medicare 35‑mile rule, under new criteria. It creates a cap on CAH designations, sets an allocation process across states, and requires annual reporting from designated facilities.
The bill also orders GAO to study implementation and MedPAC to study rural hospital payment systems, and it introduces a 9‑year sunset with transition options to alternative payment models.
At a Glance
What It Does
The bill allows states to certify eligible rural hospitals as CAHs by meeting new criteria and waiving the 35‑mile rule, subject to caps and a designated allocation process. It also requires reporting from CAHs and imposes a sunset with payment-model transitions.
Who It Affects
Rural hospitals meeting the new criteria, state health departments, CMS, and rural residents relying on CAH services. Hospitals must adapt to reporting requirements and potential payment-model changes.
Why It Matters
It creates a controlled, state-led pathway to preserve access to critical rural health services while testing a new CAH framework and preparing for future payment reforms.
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What This Bill Actually Does
The act would let states loosen the distance-based barrier that currently limits which facilities can be designated as critical access hospitals (CAHs) under Medicare. To qualify under the new framework, a facility must fit within a defined set of rural-hospital categories and meet financial and governance conditions designed to demonstrate solvency and service continuity.
Importantly, the designation is contingent on meeting the new criteria (including two consecutive years of negative operating margins leading up to certification and an attestation of governance and a plan to add or expand a needed service line).
A new cap would limit CAH designations to no more than 120 facilities nationwide and no more than 5 per state. The bill sets an initial allocation process: if a state has at least one eligible facility, it receives at least one designation; remaining designations are allocated proportionally based on how many eligible facilities exist in each state.
States would apply these designations to facilities described as CAHs under the updated framework and subject to the cap. Facilities designated under this framework must submit annual reports about new or expanded services, and they must notify CMS of material changes to their service lines with a plan to maintain access.
The Secretary would have authority to revoke certification for noncompliance. Implementation would require final regulations within a year.
The bill also clarifies that these changes do not alter other existing criteria for CAH designation under 1820(c)(2)(B)(i). Separately, the act requires two major studies: (1) a GAO analysis of the implementation, including how designations affect financial status and Medicare expenditures; and (2) a MedPAC study of rural hospital payment systems, with a final report due about eight years after enactment.
The provisions define “rural hospital” to include CAHs and several other rural hospital types for purposes of the broader study and potential reforms. A sunset kicks in nine years after enactment, at which point facilities designated under the state process may transition to a new payment model (as recommended by MedPAC), revert to their prior payment method, or move to a rural emergency hospital model under existing law.
The Five Things You Need to Know
The bill caps CAH designations at 120 facilities nationwide and 5 per state.
States may designate CAHs by meeting new criteria that allow waiving the 35‑mile rule.
Designated CAHs must report annual service data and may be revoked for noncompliance.
A GAO study and a MedPAC study will evaluate implementation and rural payment reforms.
A nine‑year sunset requires transition to a new payment model, revert to prior payments, or shift to a rural emergency hospital model.
Section-by-Section Breakdown
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Restoring State Authority to Waive the 35‑Mile Rule
This section amends Section 1820 to authorize states to certify facilities as CAHs under a new subparagraph framework, allowing a waiver of the 35‑mile rule for designated facilities. It defines the conditions under which a hospital can be described as a CAH for purposes of certification, including location in a rural area and the hospital’s status among specific rural hospital types. It also introduces a cap on total CAH designations and a per‑state cap, and it establishes an allocation process (initial and remaining) designed to distribute designations based on the presence of eligible facilities.
CAH-Eligible Hospital Types
The bill enumerates eligible facilities: sole community hospitals, medicare dependent, small rural hospitals, low‑volume hospitals with certain payment adjustments, and subsection (d) hospitals. Eligibility hinges on rural location and meeting a set of criteria related to poverty levels, health professional shortage areas, or inpatient day mix, plus attestation of ongoing operation and two consecutive years of negative margins. The facility must also attest to maintaining or expanding a service line in high demand or limited supply, such as obstetrics or behavioral health care.
Limitations on CAH Designations
To prevent overreach, the secretary may not certify more than 120 facilities as CAHs nationwide, and no more than 5 in any single state. The designation process is staged: an initial allocation targets states with eligible facilities, followed by a proportional allocation of the remaining designations based on the count of eligible hospitals in each state.
Reporting and Revocation
Facilities certified under the new framework must submit annual reports on information related to the new service lines and any changes to the service mix. When a CAH changes its service line, it must notify the Secretary and present a plan to maintain access to care. The Secretary may revoke certification for noncompliance, and the provision preserves existing CAH designation criteria outside the new framework.
GAO Study and Report
The Comptroller General must study the implementation of the new designation framework, including hospital characteristics of newly designated CAHs, financial outlook, and any Medicare expenditure changes resulting from the designation. A formal report with recommendations is due within six years of enactment.
MedPAC Study on Rural Hospital Payments
MedPAC must study rural hospital payment systems using data from 2018–2028, analyzing CAHs designated under the new framework and exploring payment models that could ensure sustainability while preserving access. If MedPAC recommends a new system, the study should assess transition impacts from existing models. A final Congress‑level report is due within eight years of enactment.
Sunset and Transition
Nine years after enactment, the Secretary must establish a mechanism to transition CAHs designated under the state framework to one of three options: (1) a MedPAC‑recommended new payment model, (2) the pre‑designation prospective payment model, or (3) payment as a rural emergency hospital under 1834(x).
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- States that have eligible rural hospitals can preserve access by designating CAHs under a tailored framework and allocation process.
- Rural hospitals that meet the new criteria and obtain CAH designation could gain access to Medicare cost‑based payments and related support, helping stabilize finances when margins are negative.
- Rural residents in areas served by newly designated CAHs may experience improved access to emergency and routine care, especially obstetric and behavioral health services, through expanded service lines.
- State health departments and rural health networks gain a clearer process for maintaining essential services in hard‑to‑serve areas.
Who Bears the Cost
- CMS and the federal government bear additional administrative and oversight costs to implement and monitor the new CAH designation and reporting requirements.
- Hospitals that do not gain CAH designation due to the cap may bear opportunity costs and continued reliance on existing payment structures.
- Some rural hospitals may face transitional costs if a sunset forces a difficult switch to a new payment model or to a rural emergency hospital designation, potentially disrupting current revenue streams.
Key Issues
The Core Tension
The core dilemma is whether expanding CAH designations through state waivers, within fixed caps, will reliably improve rural access without creating new inefficiencies or inequities in Medicare payments and rural health infrastructure.
The bill threads a careful balance between expanding access to rural emergency care and maintaining fiscal discipline through a capped designation system. It introduces significant reporting and governance requirements for CAHs and relies on ongoing data collection to inform future policy decisions.
While the framework provides a path for rural hospitals to preserve critical services, it also creates potential implementation challenges, including the risk that the caps could exclude facilities that might otherwise sustain access to care and the administrative burden for state agencies to manage designation and reporting at scale.
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